Product Details

To keep up with the law and make money as a residential landlord, you need a guide you can trust: Every Landlord's Legal Guide.

From move-in to move-out, here’s help with legal, financial and day-to-day issues. You’ll avoid hassles and headaches—not to mention legal fees and lawsuits. Use this top-selling book to:

screen and choose tenants

prepare leases and rental agreements

avoid discrimination, invasion of privacy, personal injury, and other lawsuits

hire a property manager

keep up with repairs and maintenance

make security deposit deductions

handle broken leases

learn how to terminate a tenancy for nonpayment of rent or other lease violations

restrict tenants from renting their place on Airbnb, and

deal with bedbugs, mold and lead hazards.

The 14th edition is completely revised to provide your state’s current laws, covering deposits, rent, entry, termination, late rent notices, and more. It includes a new discussion of how to deal with the aftermath of a tenant’s death (it happens more often than you think).

“No landlord should be without a copy of Every Landlord’s Legal Guide.” -The Florida Times-Union

"…the bible for landlords." –Chicago Tribune

"Complete, detailed, accurate, practical, easy-to-understand and superb.... Every residential landlord in all 50 states should be required to read this outstanding book and to keep it handy for reference." -Los Angeles Times

ISBN

9781413325171

Number of Pages

504

Included Forms

Screening, Choosing, and Rejecting Applicants

Rental Application

Consent to Contact References and Perform Credit Check

Tenant References

Notice of Denial Based on Credit Report or Other Information

Notice of Conditional Acceptance Based on Credit Report or Other Information

B. How to Use the Downloadable Forms on the Nolo Website

Index

Sample Chapter

Chapter 1 Screening Tenants: Your Most Important Decision

Choosing tenants is the most important decision any landlord makes, and to do it well you need a reliable system. Follow the steps in this chapter to maximize your chances of selecting tenants who will pay their rent on time, keep their units in good condition, and not cause you any legal or practical problems later.

How Landlord’s Associations Can Help

All the rules and procedures for choosing tenants may seem overwhelming the first time around. This chapter provides all the legal and practical information and forms you need to do the job right. You can also get a lot of advice from talking with other landlords. You may want to check out local or state rental property associations, which range from small, volunteer-run groups of landlords to substantial organizations with paid staff and lobbyists, that offer a wide variety of support and services to their members. Here are some services that may be available from your landlords’ association:

legal information and updates through newsletters, publications, seminars, and other means

tenant screening and credit check services

training and practical advice on compliance with legal responsibilities, and

a place to meet other rental property owners and exchange information and ideas.

If you can’t find an association of rental property owners online or in your phone book, ask other landlords for references. You can also contact the National Apartment Association (NAA), a national organization whose members include many individual state associations (www.naahq.org), and the National Multifamily Housing Council (www.nmhc.org), which provides useful networking opportunities and research.

RELATED TOPICBefore you advertise your property for rent, make a number of basic decisions—including how much rent to charge, whether to offer a fixed-term lease or a month-to-month rental agreement, how many tenants can occupy each rental unit, how big a security deposit to require, and whether you’ll allow pets. Making these important decisions should dovetail with writing your lease or rental agreement (see Chapter 2.)

Avoiding Fair Housing Complaints and Lawsuits

Federal and state antidiscrimination laws limit what you can say and do in the tenant selection process. Because the topic of discrimination is so important we devote a whole chapter to it later in the book (Chapter 5), including legal reasons for refusing to rent to a tenant and how to avoid discrimination in your tenant selection process. You should read Chapter 5 before you run an ad or interview prospective tenants. For now, keep in mind four important points:

You are legally free to choose among prospective tenants as long as your decisions are based on legitimate business criteria. You are entitled to reject applicants with bad credit histories, income that you reasonably regard as insufficient to pay the rent, or past behavior—such as property damage or consistent late rent payments—that makes someone a bad risk. A valid occupancy limit that is clearly tied to health and safety or legitimate business needs can also be a legal basis for refusing tenants. It goes without saying that you may legally refuse to rent to someone who can’t come up with the security deposit or meet some other condition of the tenancy.

Fair housing laws specify clearly illegal reasons to refuse to rent to a tenant. Federal law prohibits discrimination on the basis of race, religion, national origin, gender, age, familial status, or physical or mental disability (including recovering alcoholics and people with a past drug addiction). Many states and cities also prohibit discrimination based on marital status or sexual orientation.

Anybody who deals with prospective tenants must follow fair housing laws. This includes owners, landlords, managers, and real estate brokers, and all of their employees. As the property owner, you may be held legally responsible for your employees’ discriminatory statements or conduct, including sexual harassment. “Your Liability for a Manager’s Acts,” in Chapter 6, explains how to protect yourself from your employee’s illegal acts.

Consistency is crucial when dealing with prospective tenants. If you don’t treat all tenants more or less equally—for example, if you arbitrarily set tougher standards for renting to a member of a racial minority—you are violating federal laws and opening yourself up to lawsuits.

How to Advertise Rental Property

putting an “Apartment for Rent” sign in front of the building or in one of the windows

taking out ads in a local newspaper

posting flyers on neighborhood bulletin boards, such as the local laundromat or coffee shop

listing with a local real estate broker that handles rentals

hiring a property management company that will advertise your rentals as part of the management fee, or

posting a notice with university, alumni, or corporate housing offices.

The kind of advertising that will work best depends on a number of factors, including the characteristics of the particular property (such as rent, size, amenities), its location, your budget, and whether you are in a hurry to rent. Many smaller landlords find that instead of advertising widely and having to screen many potential tenants in an effort to sort the good from the bad, it makes better sense to market their rentals through word of mouth—telling friends, colleagues, neighbors, and current tenants, and by posting on Facebook and other social media.

Craigslist and Online Apartment Listing Services

Dozens of online services now make it easy to reach potential tenants, whether they already live in your community or are moving from out of state.

Craigslist and other online community posting boards allow you to list your rentals at no or low charge and are a good place to start. Craigslist, the most established community board, has local sites for every major metropolitan area. Check out www.craigslist.org for details. Local online services may also be available, particularly in large urban areas; examples include Apartable.com in New York City and Westside Rentals in Southern California.

National apartment listing services are also available, with the largest ones representing millions of apartment units in the United States. Some of the most established are:

www.apartments.com

www.hotpads.com (a Zillow company)

www.rentals.com

www.rent.com

www.apartmentsearch.com

www.apartmentguide.com,

www.forrent.com

www.zumper.com, and

onradpad.com.

These national sites offer a wide range of services, from simple text-only ads that provide basic information on your rental (such as the number of bedrooms) to full-scale virtual tours and floor plans of the rental property. Services typically include mobile apps, too. Prices vary widely depending on the type of ad, how long you want it to run, and any services you purchase (some websites provide tenant-screening services).

Before you use any online apartment rental service, make sure it’s reputable. Find out who owns it, how long the company has been in business and how they handle problems with apartment listings. Check for any consumer complaints, and avoid paying any hefty fee without thoroughly checking out a company and its services.

To stay out of legal hot water when you advertise, just follow these simple rules.

Describe the rental unit accurately. As a practical matter, you should avoid abbreviations and real estate jargon in your ad. Include basic details, such as:

pets (whether you allow or not and any restrictions, such as dog breeds your insurance prohibits)

your nonparticipation in the Section 8 program (assuming you have the choice—see Chapter 5 for details)

phone number, website, and/or email for more details (unless you’re going to show the unit only at an open house and don’t want to take calls), and

date and time of any open house.

If you have any important rules (legal and nondiscriminatory), such as no smoking, put them in your ad. Letting prospective tenants know about your important policies can save you or your manager from talking to a lot of unsuitable people. For example, your ad might say you require credit checks in order to discourage applicants who have a history of paying rent late.

Be sure your ad can’t be construed as discriminatory. The best way to do this is to focus only on the rental property—not on any particular type of tenant. Specifically, ads should never mention sex, race, religion, disability, or age (unless yours is really legally recognized senior citizens housing). And ads should never imply through words, photographs, or illustrations that you prefer to rent to people because of their age, sex, or race. For example, an ad in a church newsletter that contains a drawing of a recognizably white (or black or Asian) couple with no children might open you to an accusation of discrimination based on race, age, and familial status (prohibiting children).

Quote an honest price in your ad. If a tenant who is otherwise acceptable (has a good credit history and impeccable references and meets all the criteria explained below) shows up promptly and agrees to all the terms set out in your ad, you may violate false advertising laws if you arbitrarily raise the price. This doesn’t mean you are always legally required to rent at your advertised price, however. If a tenant asks for more services or different lease terms that you feel require more rent, it’s fine to bargain and raise your price, as long as your proposed increase doesn’t violate local rent control laws.

Don’t advertise something you don’t have. Some large landlords, management companies, and rental services have advertised units that weren’t really available in order to produce a large number of prospective tenants who could then be directed to higher-priced or inferior units. Such bait-and-switch advertising is clearly illegal under consumer fraud laws, and many property owners have been prosecuted for such practices. So if you advertise a sunny two-bedroom apartment next to a rose garden for $800 a month, make sure that the second bedroom isn’t a closet, the rose garden isn’t a beetle-infested bush, and the $800 isn’t the first week’s rent.

Keep in mind that even if you aren’t prosecuted for breaking fraud laws, your advertising promises can still come back to haunt you. A tenant who is robbed or attacked in what you advertised as a “high-security building” may sue you for medical bills, lost earnings, and pain and suffering.

Finding Tenants Who Are Advertising Themselves

Tradition has it that landlords list available rentals, tenants find them. But tenants advertising themselves as ready to rent—not so much. All of that has changed with the proliferation of online sites that allow prospecting tenants to market themselves to landlords. Neighborhood Laundromat bulletin board, meet the likes of Craigslist (“Housing Wanted”) and private social media networks like Next Door.

Apartment seekers who post online ads describe their property needs and their price range, hoping that a landlord in the area will see their post and contact them. The idea is similar to the practice in adoptions, where would-be adopting parents produce glossy and glowing descriptions of themselves and the family they want to raise, aimed at women who will choose the family that will get their child.

The Craigslist pages are chock-full of posts that run the gamut from sophisticated to self-defeating. If you decide to peruse these pages, keep these tips in mind:

The ad should reveal relevant information about the tenant’s needs and nature, so that you don’t call someone who isn’t suited for your rental. Without information that tells you that this person has “pre-screened” himself, responding to the ad is likely a waste of time.

The ad should describe a seeker that fits every landlord’s search for tenants who are stable, clean, and honest. Of course, the words on the page don’t make it true, but if you encounter information that raises red flags (a history of short-term rentals), take heed.

The ad should explain what the tenant is looking for (a quiet, secluded home, or a utilitarian studio downtown), but not spell “demanding, high maintenance tenant.” Be on the lookout for requirements that, if you meet them, would involve you in a fair housing problem (such as, “Looking for a quiet, adult community”).

Look carefully at the writer’s description of his job, interests, and how he spends his free time. Any activities that spell “property damage” or “party animal” may backfire. You’d be surprised at how many tenant-advertisers describe their love of alcohol and music (without mentioning that they use earbuds).

Beware the post that plays the sympathy card. Tenants may be down on their luck, but it’s naïve to expect landlords to choose them because they feel sorry for them. It’s admirable to work with in-place tenants who have hit a rough patch, in hopes that they can turn their fortunes around, but you’re taking a risk to begin a landlord-tenant relationship on this basis.

Renting Property That’s Still Occupied

Often, you can wait until the old tenant moves out to show a rental unit to prospective tenants. This gives you the chance to refurbish the unit and avoids problems such as promising the place to a new tenant, only to have the existing tenant not move out on time or leave the place a mess.

To eliminate any gap in rent, however, you may want to show a rental unit while its current tenants are still there. This can create a conflict; in most states, you have a right to show the still-occupied property to prospective tenants, but your current tenants are still entitled to their privacy.

To minimize disturbing your current tenant, follow these guidelines:

Before implementing your plans to find a new tenant, discuss them with the outgoing tenant, so you can be as accommodating as possible.

Give the current tenant as much notice as possible before entering and showing a rental unit to prospective tenants. State law usually requires at least one or two days. (See Chapter 13 for details.)

Try to limit the number of times you show the unit in a given week, and make sure your current tenant agrees to any evening and weekend visits.

Consider reducing the rent slightly for the existing tenant if showing the unit really will be an imposition.

If possible, avoid putting a sign on the rental property itself, since this almost guarantees that your existing tenant will be bothered by strangers. Or, if you can’t avoid putting up a sign, make sure any sign clearly warns against disturbing the occupant and includes a telephone number for information. Something on the order of “For Rent: Shown by Appointment Only. Call 555-1700. Do Not Disturb Occupants” should work fine.

If, despite your best efforts to protect their privacy, the current tenants are uncooperative or hostile, wait until they leave before showing the unit. Also, if the current tenants are complete slobs or have damaged the place, you’ll be far better off to apply paint and elbow grease before trying to rerent it.

Dealing With Prospective Tenants and Accepting Rental Applications

It’s good business, as well as a sound way to protect yourself from future legal problems, to carefully screen prospective tenants.

Tell Prospective Tenants Your Basic Requirements and Rules

Whether prospective tenants call about the rental, or just show up at an open house, it’s best to describe all your general requirements—rent, deposits, pet policy, move-in date, maximum number of occupants, and the like—and any special rules and regulations up front. This helps you avoid wasting time showing the unit to someone who simply can’t qualify—for example, someone who can’t come up with the security deposit. Describing your general requirements and rules up front can also help avoid charges of discrimination, which can occur when a member of a racial minority or a single parent is told key facts so late in the process that she jumps to the conclusion that you’ve made up new requirements just to keep her out.

Also be sure to tell prospective tenants about the kind of personal information they’ll be expected to supply on an application, including phone numbers of previous landlords and credit and employment references.

CAUTIONShow the property to and accept applications from everyone who’s interested. Even if, after talking to someone on the phone, you doubt that a particular tenant can qualify, it’s best to politely take all applications. Refusing to take an application may unnecessarily anger a prospective tenant, and may make the applicant more likely to look into the possibility of filing a discrimination complaint. And discriminating against someone simply because you don’t like the sound of his or her voice on the phone (called linguistic profiling) is also illegal and may result in a discrimination claim. Show the property to and accept applications from anyone who’s interested and make decisions about who will rent the property later. Be sure to keep copies of all applications. (See discussion of record keeping below.)

Ask Interested Tenants to Complete a Rental Application

To avoid legal problems and choose the best tenant, ask all prospective tenants to fill out a written rental application that includes information on the applicant’s employment, income, and credit; Social Security and driver’s license numbers or other identifying information; past evictions or bankruptcies; and references.

A sample Rental Application is shown below and the Nolo website includes a downloadable copy. See Appendix B for the link to the forms in this book.

Before giving prospective tenants a Rental Application, complete the box at the top, filling in the property address, rental term, first month’s rent, and any deposit or credit check fee tenants must pay before moving in. Here are some basic rules for accepting rental applications:

Give an application to all adult applicants. Each prospective tenant—everyone age 18 or older who wants to live in your rental property—should completely fill out a written application. This is true whether you’re renting to a married couple or to unrelated roommates, a complete stranger, or the cousin of your current tenant.

Insist on a completed application. Always make sure that prospective tenants complete the entire Rental Application, including Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN), explained below, driver’s license number, or other identifying information (such as a passport number); current employment; and emergency contacts. You may need this information later to track down a tenant who skips town leaving unpaid rent or abandoned property. Also, you may need the Social Security number or other identifying information, such as a passport, to request an applicant’s credit report.

CAUTIONDon’t ask for an applicant’s date of birth. This rental application does not ask applicants for their dates of birth (DOB). Many fair housing experts believe that doing so is risky, should a disappointed applicant attempt to challenge your rejection as an instance of age discrimination—having the date on the application at least establishes that you knew of the applicant’s age. Some landlords still ask for the DOB, responding to credit reporting companies’ requests for this information. You should be able to order a credit report and a screening report using the applicant’s Social Security number; if vendors balk, you may want to ask for the DOB.

You may encounter an applicant who does not have an SSN (only citizens or immigrants authorized to work in the United States can obtain one). For example, someone with a student visa will not normally have an SSN. If you categorically refuse to rent to applicants without SSNs, and these applicants happen to be foreign students, you’re courting a fair housing complaint.

Fortunately, nonimmigrant aliens (such as people lawfully in the U.S. who don’t intend to stay here permanently, and even those who are here illegally) can obtain an alternate piece of identification that will suit your needs as well as an SSN. It’s called an Individual Taxpayer Identification Number (ITIN), and is issued by the IRS to people who expect to pay taxes. Most people who are here long enough to apply for an apartment will also be earning income while in the U.S. and will therefore have an ITIN. Consumer reporting agencies and tenant screening companies can use an ITIN to find the information they need to effectively screen an applicant. On the Rental Application, use the line “Other Identifying Information” for an applicant’s ITIN.

Getting a Unit Ready for Prospective Tenants

It goes without saying that a clean rental unit in good repair will rent more easily than a rundown hovel. And, in the long run, it pays to keep your rental competitive. Before showing a rental unit, make sure the basics are covered:

Clean all rooms and furnishings, floors, walls, and ceilings—it’s especially important that the bathroom and kitchen are spotless.

Remove all clutter from closets, cupboards, and surfaces.

Take care of any insect or rodent infestations.

Make sure that the appliances and fixtures work. Repair leaky faucets and frayed cords, replace burnt-out lights, and check the unit for anything that might cause injury or violate health and safety codes. (Chapter 9 discusses state and local health and safety laws.)

Cut the grass, trim shrubbery, and remove all trash and debris on the grounds.

Update old fixtures and appliances, and repaint the walls and replace the carpets if necessary.

Nolo’s Every Landlord’s Guide to Managing Property includes extensive advice on preparing your rental units for new tenants, including detailed cleaning, painting, and repair routines, how to get rid of pet odors, and other specific turnaround tasks.

If the previous tenant left the place in good shape, you may not need to do much cleaning before showing it to prospective tenants. To make this more likely, be sure to send outgoing tenants a move-out letter describing your specific cleaning requirements and conditions for returning the tenant’s security deposit. (Chapter 15 discusses move-out letters.)

CAUTIONDo not consider an ITIN number as proof of legal status in the U.S. The IRS does not research the taxpayer’s immigration status before handing out the number.

Check for a signature and consider getting a separate credit check authorization. Be sure all potential tenants sign the Rental Application, authorizing you to verify the information and references and to run a credit report. (Some employers and others require written authorization before they will talk to you.) You may also want to prepare a separate authorization, signed and dated by the applicant, so that you don’t need to copy the entire application and email or fax it every time a bank or employer wants proof that the tenant authorized you to verify the information. A sample Consent to Contact References and Perform Credit Check is shown above, and the Nolo website includes a downloadable copy. See Appendix B for the link to the forms in this book.

When you talk to prospective tenants, stick to questions on the application. Avoid asking questions that may discriminate, specifically any inquiries as to the person’s birthplace, age, religion, marital status or children, physical or mental condition, or arrests that did not result in conviction. (See Chapter 5 for details on antidiscrimination laws.)

Request Proof of Identity and Immigration Status

In these security-sensitive times, many landlords ask prospective tenants to show their driver’s license or other photo identification as a way to verify that the applicant is using his real name.

Except in California (Cal. Civ. Code § 1940.3), and New York City (N.Y.C. Admin. Code § 8-107(5)(a)), you may also ask applicants for proof of identity and eligibility to work under U.S. immigration laws, such as a work permit, a U.S. passport, or a naturalization certificate. Do so using Form I-9 (Employment Eligibility Verification) from the U.S. Citizenship and Immigration Services, or USCIS (a bureau of the U.S. Department of Homeland Security). This form (and instructions for completing it) are available at www.uscis.gov/i-9, or by phone at 800-375-5283. Remember that an Individual Taxpayer Identification Number (ITIN) is not proof of legal status in the U.S.—it is merely a way for the IRS to identify a taxpayer.

Some people who have the right to be in the United States, such as some students and other temporary visa holders, may not have the right to work, which is the focus of the I-9 form. To confirm their right to be in the U.S., ask for their I-94 or other document describing their status.

Under federal fair housing laws, you may not selectively ask for such immigration information—that is, you must ask all prospective tenants, not just those you suspect may be in the country illegally. It is illegal to discriminate on the basis of national origin, although you may reject someone on the basis of immigration status, as discussed in Chapter 5.

RELATED TOPICFor a related discussion on security issues regarding suspected terrorists, see “Cooperating With Law Enforcement in Terrorism Investigations” in Chapter 13.

CAUTIONTake your time to evaluate applications. Landlords are often faced with anxious, sometimes desperate people who need a place to live immediately. On a weekend or holiday, especially when it’s impossible to check references, a prospective tenant may tell you a terrific hard-luck story as to why normal credit- and reference-checking rules should be ignored in their case and why they should be allowed to move right in. Don’t believe it. People who have planned so poorly that they will literally have to sleep in the street if they don’t rent your place that day are likely to come up with similar emergencies when it comes time to pay the rent. Taking the time to screen out bad tenants will save you lots of problems later on.

Never, never let anyone stay in your property on a temporary basis. Even if you haven’t signed a rental agreement or accepted rent, you give someone the legally protected status of a tenant by giving that person a key or allowing him or her to move in as much as a toothbrush. Then, if the person won’t leave voluntarily, you will have to file an eviction lawsuit. Chapter 8 discusses the legal rights of occupants you haven’t approved.

Checking References, Credit History, and More

If an application looks good, your next step is to follow up thoroughly. The time and money you spend are some of the most cost-effective expenditures you’ll ever make.

CAUTIONBe consistent in your screening. You risk a charge of illegal discrimination if you screen certain categories of applicants more stringently than others. Make it your policy, for example, to always require credit reports; don’t just get a credit report for a single parent or older applicants.

Here are six steps of a very thorough screening process. You should always go through at least the first three to check out the applicant’s previous landlords, income, and employment, and run a credit check.

Check With Current and Previous Landlords and Other References

Always call current and previous landlords or managers for references—even if you have a written letter of reference from them. (A prior landlord may be a better source of information than a current one, since a past landlord has no motive to give a falsely glowing report on a troublemaker.) Also call employers and personal references listed on the application.

To organize the information you gather from these calls, use the Tenant References form, which lists key questions to ask landlords, managers, and other references. A sample is shown below and the Nolo website includes a downloadable copy. See Appendix B for the link to the forms in this book.

TIPCheck out pets, too. If the prospective tenant has a dog or cat, be sure to ask previous landlords if the pet caused any damage or problems for other tenants or neighbors. It’s also a good idea to meet the dog or cat, so you can make sure that it’s well-groomed and well-behaved, before you make a final decision. You must, however, accommodate a mentally or physically disabled applicant whose pet serves as a support animal—no matter how mangy-looking the pet might be. For more information on renting to tenants with pets, see Chapter 2, Clause 14.

Be sure to take notes of all your conversations and keep them on file. You may note your reasons for refusing an individual on the Tenant References form—for example, negative credit information, insufficient income, or your inability to verify information. You’ll want to record this information so that you can survive a fair housing challenge if a disappointed applicant files a discrimination complaint against you.

Occasionally, you may encounter a former landlord who is unwilling to provide key information. This reluctance may have nothing to do with the prospective tenant, but instead reflects an exaggerated fear of lawsuits. Landlords fear that their negative remarks about former tenants can be disclosed to rejected applicants if they request it, though under federal law, these conversations need not be disclosed when the landlord or landlord’s employee is the one doing the calling (see “Choosing—And Rejecting—an Applicant,” below). Still, most landlords do not understand this fine point of law, and many will be reluctant to be candid. But if a former landlord seems hesitant to talk, an approach that often works is to try to keep the person on the line long enough to verify the dates of the applicant’s tenancy. If you get minimal cooperation, you might say something like this: “I assume your reluctance to talk about Julie has to do with one or more negative things that occurred while she was your tenant.” If the former landlord doesn’t say anything, you have all the answer you need. If she says instead, “No, I don’t talk about any former tenants—actually, Julie was fairly decent,” you have broken the ice and can probably follow up with a few general questions.

Verify Income and Employment

Obviously, you want to make sure that all tenants have the income to pay the rent each month. Call the prospective tenant’s employer to verify income and length of employment. Make notes on the Tenant References form, discussed above.

Before providing this information, some employers require written authorization from the employee. You will need to mail or fax them a signed copy of the release included at the bottom of the Rental Application form or the separate Consent to Contact References and Perform Credit Check form shown above. If for any reason you question the income information you get by telephone—for example, you suspect a buddy of the applicant is exaggerating on his behalf—you may also ask applicants for copies of recent paycheck stubs.

It’s also reasonable to require documentation of other sources of income, such as Social Security, disability, workers’ compensation, public assistance, child support, or alimony. To evaluate the financial resources of a self-employed person or someone who’s not employed, ask for copies of recent tax returns or bank statements.

TIPHow much income is enough? Think twice before renting to someone if the rent will take more than one-third of their income, especially if they have a lot of debts.

Obtain a Credit Report

Private credit reporting agencies collect and sell credit files and other information about consumers. Many landlords find it essential to check a prospective tenant’s credit history with at least one credit reporting agency to see how responsible the person is managing money. Jot your findings down on the Tenant References form.

TIPGet the tenant’s consent to run a credit report. Because many people think that you must have their written consent before pulling a credit report to evaluate a prospective tenant, we have included it in our consent forms (at the end of the Rental Application and in the separate Consent to Contact References and Perform Credit Check form). But there’s another reason for doing this: A written consent will help you if, later, when the applicant is a tenant (or an ex-tenant), you decide that you need an updated credit report. For example, you may want to consult a current report in order to help you decide whether to sue a tenant who has skipped out and owes rent. Without a broadly written consent, your use of a credit report at that time might be illegal (see the “Advisory Opinion to Long (07-06-00),” on the FTC website at www.ftc.gov).

How to Get a Credit Report

A credit report contains a gold mine of information for a prospective landlord. You can find out, for example, if a particular person has ever filed for bankruptcy or has been:

late or delinquent in paying rent or bills, including student or car loans

convicted of a crime, or, in many states, even arrested

evicted (your legal right to get information on evictions, however, may vary among states)

involved in another type of lawsuit such as a personal injury claim, or

financially active enough to establish a credit history.

Depending on the type of report you order (the offerings vary according to the agency you deal with), you may also get an applicant’s credit score, the most popular being the “FICO” score. This number, ranging from 300 to 850, purports to indicate the risk that an individual will default on payments. High credit scores indicate less risk. Generally, any score above 650 is considered a medium risk or less. Don’t put too much value in a high credit score, since this number does not reflect the many other good-tenant characteristics (such as ability to get along with neighbors and take good care of your property) that are very important.

Information covers the past seven to ten years. To run a credit check, you’ll need a prospective tenant’s name, address, and Social Security number or ITIN (Individual Taxpayer Identification Number.) Three credit bureaus have cornered the market on credit reports:

Equifax (www.equifax.com)

TransUnion (www.transunion.com), and

Experian (www.experian.com).

Unless you run your business from a commercial location (that is, you’re not running your business from home), and have passed the FTC’s required onsite inspection (required to insure proper and secure storage of credit reports), you will not be able to order a credit report directly from the big three bureaus. Instead, you’ll need to work through a credit reporting agency or tenant screening service (type “tenant screening” into your browser’s search box). Look for a company that operates in your area, has been in business for a while, and provides you with a sample report that’s clear and informative. You can also find tenant screening companies in the yellow pages under “Credit Reporting Agencies.” Your state or local apartment association may also offer credit reporting services. With credit reporting agencies, you can often obtain a credit report the same day it’s requested. Fees depend on how many reports you order each month.

If you do not rent to someone because of negative information in a credit report, or you charge someone a higher rent because of such information, you must give the prospective tenant the name and address of the agency that reported the negative information. This is a requirement of the federal Fair Credit Reporting Act. (15 U.S. Code §§ 1681 and following.) You must also tell the person that he has a right to obtain a copy of the file from the agency that reported the negative information, by requesting it within 60 days of being told that your rejection was based on the individual’s credit report.

Tenants who are applying for more than one rental are understandably dismayed at the prospect of paying each landlord to pull the same credit report. They may obtain their own report, make copies, and ask you to accept their copy. Federal law does not require you to accept an applicant’s copy—that is, you may require applicants to pay a credit check fee for you to run a new report. Wisconsin and Washington are exceptions: State law in Wisconsin forbids landlords from charging for a credit report if, before the landlord asks for a report, the applicant offers one from a consumer reporting agency and the report is less than 30 days old. (Wis. Adm. Code ATCP 134.05(4)(b).) And in Washington, landlords must advise tenants whether they will accept a screening report done by a consumer reporting agency (in which case you may not charge the tenant a fee for a screening report). Landlords who maintain a website that advertises residential rentals must include this information on the home page. (Wash. Rev. Code Ann. § 59.18.257)

California Law on Application Screening Fees and Credit Reports

California state law limits credit check or application screening fees you can charge prospective tenants and specifies what you must do when accepting these types of fees. (Cal. Civ. Code § 1950.6.) Here are key provisions of the law:

You may charge a screening fee whose maximum is regulated by law (Cal. Civ. Code § 1950.6). To learn the current allowable charge, go to the city of Berkeley’s Rent Stabilization website (www.ci.berkeley.ca.us) and type “tenant application screening fee” in the search box. You’ll get a list of articles, one of which will give the current allowable fee for all of California.

This screening fee may be used for “actual out-of-pocket costs” of obtaining a credit report, plus “the reasonable value of time spent” by a landlord in obtaining a consumer credit report or checking personal references and background information on a rental applicant.

If you use the screening fee to obtain the applicant’s credit report, you must give the applicant a copy of the report upon his or her request.

If you spend less (for the credit report and your time) than the screening fee you collected, you must refund the difference. If you never get a credit report or check references on an applicant, you must refund the entire screening fee.

Unless the applicant agrees in writing, you may not charge a screening fee if no rental unit is available. However, if a unit will be available within a reasonable period of time, you may charge the fee without obtaining the applicant’s written permission.

You must provide an itemized receipt when you collect an application screening fee. A sample receipt is shown below.

Landlords in California should also be aware that consumers may place a “freeze” on their credit reports, preventing anyone but specified parties (such as law enforcement) from getting their credit report. (Cal. Civ. Code §§ 1785.11.2 and following.) However, consumers can arrange for certain persons—such as a landlord or management company—to access their report; or the freeze itself can be suspended for a specified period of time. If an applicant has placed a freeze on his or her credit report, you’ll need access so that you can receive a copy of their report. An applicant who fails to lift a freeze will have an incomplete application, which is grounds for rejecting that application. (Cal. Civ. Code § 1785.11.2(h).)

Credit Check Fees

It’s legal in most states to charge prospective tenants a fee for the cost of the credit report itself and your time and trouble. Any credit check fee should be reasonably related to the cost of the credit check —$30 to $50 is common. California sets a maximum screening fee and requires landlords to provide an itemized receipt when accepting a credit check fee. See “California Law on Application Screening Fees and Credit Reports,” above, for details.

Some landlords don’t charge credit check fees, preferring to absorb the cost as they would any other cost of business. For low-end units, charging an extra fee can be a barrier to getting tenants in the first place, and a tenant who pays such a fee but is later rejected is likely to be annoyed and possibly more apt to try to concoct a discriminatory reason for the denial.

The Rental Application form in this book informs prospective tenants of your credit check fee. Be sure prospective tenants know the purpose of a credit check fee and understand that this fee is not a holding deposit and does not guarantee the rental unit. (We discuss holding deposits below.)

Also, if you expect a large number of applicants, you’d be wise not to accept fees from everyone. Instead, read over the applications first and do a credit check only on those who are genuine contenders (for example, exclude and reject those whose income doesn’t reach your minimum rent-to-income ratio). That way, you won’t waste your time (and prospective tenants’ money) collecting fees from unqualified applicants.

CAUTIONIt is illegal to charge a credit check fee if you do not use it for the stated purpose and pocket it instead. Return any credit check fees you don’t use for that purpose.

Investigative or Background Reports

Some credit reporting companies and “tenant screening companies” also gather and sell background reports about a person’s character, general reputation, personal characteristics, or mode of living. If you order a background check on a prospective tenant, it will be considered an “investigative consumer report” under federal law (the Fair Credit Reporting Act, 15 U.S. Code §§ 1681 and following, as amended by the Fair and Accurate Credit Transactions Act of 2003) and you must tell the applicant, within three days of requesting the report, that the report may be made and that it will concern his character, reputation, personal characteristics, and criminal history. You must also tell the applicant that more information about the nature and scope of the report will be provided upon request; and, if asked, you must provide this information within five days.

If you turn down the applicant based wholly or in part on information in the report, you must tell the applicant that the application was denied based on information in the report, and give the applicant the credit or tenant screening agency’s name and address.

Using SmartMove to Get Information About Applicants

Transunion, one of the three major credit reporting companies, has come up with a creative way for landlords to obtain screening reports without having to use a credit reporting agency (SmartMove, www.mysmartmove.com). The method also protects applicants’ credit scores, in that the report counts only as a “soft inquiry” to the applicant’s file (multiple requests for credit reports are a negative sign). Importantly, SSNs are not revealed to the landlord. Either the landlord or the applicant can pay for the service.

Applicants whose landlords will accept the SmartMove report initiate the screening process by filling out an application to generate a report. The report contains a recommendation on whether to rent to this applicant, based on credit, criminal, and eviction history. For a bit more money, landlords can ask for a credit score, too.

Using SmartMove has its pros and cons. On the plus side, the recommendation is geared to the rental housing context (whereas a credit score was designed to predict whether the applicant would repay a loan). Transunion accesses multiple databases to compile its information, something not done by all agencies. On the negative side, five states (CO, DE, MA, SD, and WY) do not post criminal data, so landlords who are evaluating applicants who have lived in those states will be paying for a service that isn’t available (not to mention that one doesn’t have to live in a particular state to commit a crime there). In addition, the service requires some work on the part of the applicants (they must complete an authentication form, to deter identity theft). This step will deter some applicants (but arguably, if an applicant isn’t serious enough to complete the process, arguably he’s not the one for you, either).

Small landlords who operate from home and want something more thorough than a credit score should check out SmartMove.

What You’re Looking For

In general, be leery of applicants with lots of debts —so that their monthly payments plus the rent obligation exceed 40% of their income. Also, look at the person’s bill-paying habits, and, of course, pay attention to lawsuits and evictions.

Sometimes, your only choice is to rent to someone with poor or fair credit. If that’s your situation, you might have the following requirements:

good references from previous landlords and employers

a creditworthy cosigner to cosign the lease (Chapter 2 includes a cosigner agreement)

a good-sized deposit, as much as you can collect under state law (see Chapter 4), and

proof of steps taken to improve credit—for example, enrollment in a debt counseling group.

If the person has no credit history—for example, a student or recent graduate—you may reject them or consider requiring a cosigner before agreeing to rent to them.

CAUTIONHandle credit reports carefully. Federal law requires you to keep only needed information, and to discard the rest. See “How to Handle Credit Reports,” in Chapter 7 for precise information.

Verify Bank Account Information

If an individual’s credit history raises questions about financial stability, you may want to double-check the bank accounts listed on the rental application. If so, you’ll probably need an authorization form such as the one included at the bottom of the Rental Application, or the separate Consent to Contact References and Perform Credit Check (discussed above). Banks differ as to the type of information they will provide over the phone. Generally, banks will at most only confirm that an individual has an account there and that it is in good standing.

CAUTIONBe wary of an applicant who has no checking or savings account. Tenants who offer to pay cash or with a money order should be viewed with extreme caution. Perhaps the individual bounced so many checks that the bank dropped the account or the income comes from an illegitimate source—such as drug dealing.

Visiting the Homes of Prospective Tenants

Some landlords like to visit prospective tenants at their home to see how well they maintain a place. If you find this a valuable part of your screening process, and have the time and energy to do it, be sure you get the prospective tenants’ permission first. Don’t just drop by unexpectedly. Some landlords fabricate a reason for the visit (“I forgot to have you sign something”), but it’s better to be honest regarding the purpose of your visit.

Review Court Records

If your prospective tenants have lived in the area, you may want to review local court records to see if collection or eviction lawsuits have ever been filed against them. Checking court records may seem like overkill, because some of this information may be available on credit reports, but it’s an invaluable tool and is not a violation of antidiscrimination laws as long as you check the records of every applicant who reaches this stage of your screening process. Because court records are kept for many years, this kind of information can supplement references from recent landlords. Call the local court that handles eviction cases for details, including the cost of checking court records.

Use Megan’s Law to Check State Databases of Sexual Offenders

Not surprisingly, most landlords do not want tenants with criminal records, particularly convictions for violent crimes or crimes against children. Checking a prospective tenant’s credit report, as we recommend above, is one way to find out about a person’s criminal history. Self-reporting is another: Rental applications, such as the one in this book, typically ask whether the prospective tenant has ever been convicted of a crime, and, if so, to provide details.

“Megan’s Law” may be able to assist you in confirming that some of the information provided in the rental application and revealed in the credit report is complete and correct. Named after a young girl who was killed by a convicted child molester who lived in her neighborhood, this 1996 federal crime prevention law charged the FBI with keeping a nationwide database of persons convicted of sexual offenses against minors and violent sexual offenses against anyone. Every state has its own version of Megan’s Law. These laws typically require certain convicted sexual offenders to register with local law enforcement officials, who keep a database on their whereabouts.

How Megan’s Law Works

Unfortunately, the states are not consistent when it comes to using and distributing the database information. Notification procedures and the public’s access rights vary widely:

Widespread notification/easy access. A few states are “wide open”—they permit local law enforcement to automatically notify neighbors of the presence of sexual offenders on the database, by way of either letters, flyers, or notices published in local newspapers. Alternately, some states make the information available to anyone who chooses to access the database.

Selected notification/limited access. Other states take a more restrictive approach, allowing law enforcement to release the information only if they deem it necessary. Or, states permit public access only to persons who demonstrate a legitimate need to know the names of convicted sexual offenders.

Restricted notification/narrow access. Finally, many states are quite restrictive, permitting notification only to certain individuals or officials, and allowing access only to them.

For information on your state’s Megan’s Law and restrictions on your use of information derived from a Megan’s Law database, contact your local law enforcement agency. To find out how to access your state’s sex offender registry, you can also contact the Parents for Megan’s Law (PFML) Hotline at 888-ASK-PFML or check www.parentsformeganslaw.org.

The Limitations of Megan’s Law Searching

The early promise of Megan’s Law databases was ambitious. Landlords expected that they could quickly find accurate information on any person, and freely use it to reject an applicant with an unsavory past. Several years’ experience with the databases, and legal challenges to their use, have resulted in landlords’ taking a much more cautious approach to running a Megan’s Law search. Here are the issues:

Accuracy. Megan’s Law databases are notoriously inaccurate, the result of incomplete or old data or entries that mistake one person for another. You can’t assume your search will be worth much.

Relevance. The criminal offense you discover on the database may not be relevant to whether this applicant is likely to be a threat to you, your tenants, or your property. For example, in some states consensual intercourse between minors (statutory rape) is an offense for which a person must register.

Misleading negatives. Many convictions result from plea bargains. For example, someone charged with a registerable offense may end up with an assault conviction—perhaps because the prosecutor couldn’t prove the charge, or because a chief witness disappeared. You’ll never know whether the assault conviction was originally charged as such, or began as a far more serious charge and ended up less so because the defendant lucked out. In other words, a relatively harmless-looking conviction that would not bother you may in fact mask a more serious incident.

Tenants Will Be Checking You Out, Too

While you’re checking out a potential tenant (asking for references and getting a credit report), don’t be surprised if the tenant is checking you out, too. Savvy applicants will ask your current tenants what it’s like to rent from you (including how quickly you handle repairs) and the pluses and minuses of living in the building.

Several websites provide tenants with background information about you and your property. One of the major ones is www.apartmentratings.com. This comprehensive website has over two million reviews of individual apartments and property managers nationwide. It includes other information useful to new tenants, such as noise and safety ratings of each rental.

Expectations you create in other tenants. If you do a database check, you should let applicants know that you’re doing so (this will allow applicants to opt out of the application process, and may spare you a charge of invading their privacy). Residents will assume that you have not rented to anyone on a Megan’s Law list. They may relax their guard—for example, a family may assume it’s okay for their children to be home alone after school. Suppose you’ve rented to someone who should have been on the list but mistakenly wasn’t, and he assaults one of the children. The family could argue in court that they relied on your implied promise that the building was safe, and that you bear some of the responsibility since you rented to someone who posed a risk of harm.

Loss of other tenants. Ironically, if you decide that a past offense was not relevant, and rent to this applicant, you may have to disclose his past (to save you from the fate described just above). Other tenants won’t share your complacency, and will leave. Before you know it, your only tenant will be the one you least want.

Lawsuit waiting to happen. Finally, you may be the unlucky landlord who’s targeted by a lawyer armed with many legal theories of why the Megan’s Law registration and search structure is unconstitutional. These arguments (due process, equal protection, privacy, and the like) are not far-fetched. They’ve been made already, and at some point, a judge is going to agree with one of these legal theories.

Illegal in some states. Finally, in some states and cities you simply cannot use information derived from a Megan’s Law database to discriminate.

Many landlord associations and landlords’ lawyers have concluded that the problems associated with Megan’s Law searches are simply not worth the questionable results you’ll get when you run them. Their advice is to stick to the tried-and-true methods of thoroughly checking references and examining the applicant’s credit report for unexplained gaps (which may be due to time in prison).

* * *

We hope you enjoyed this sample of Every Landlord's Legal Guide. Read the rest of the chapter by purchasing the book.

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